Tag Archives: Bailout legislation

An Iraqi reporter hurled a shoe at George Bush in a fit of frustration, while Jeff and Glenn hurl all they’ve got at the Washington Elite in the 18th Episode of PoliTalk. Unlike the Iraqi, however, the PoliTalk guys hit their mark this week: Illinois Governor Rod Blagojevich for his outlandish fraud; Caroline Kennedy for her lack of credentials (does it really matter); the “Big 3” car companies for ponying up to the trough, and the politicians for filling it; Bernie Maddoff for his unbelievable, unscrupulous $50 billion ponzi scheme that hurt countless innocent people, and the makers of really bad television for leaving Glenn and Jeff off the political talk circuit for yet another week. Get your real political analysis here at PoliTalk.

Listen to the current installment of PoliTalk and get yourself informed, inspired, entertained and ready for the day… spread the word… tell two friends, and so on and so on…

Elected officials again show profiles in political weakness by buckling to pressure to bailout the big 3 auto manufacturers. As if the lessons of the financial bailout weren’t disastrous enough (fool me once, shame on you, fool me twice, shame on me…). As if caught in a web of bizarre reverse Darwinism, only the weak shall survive. If you’re strong enough to run your business well, you only have to worry about banks freezing credit, the economy crippling your business and making ends meet. But if you fail spectacularly, I mean really, really badly, well, then you are rewarded. John Thain, CEO of Merrill Lynch, is reportedly seeking at $10 million bonus this year.

The car makers, who have essentially run their dinosaur-of-a-business into the ground, are now seeking $35 billion in federal money to prop them up. AIG… well, we know the story there. So the lesson to all you kids out there: don’t work too hard, take your private jets whenever possible, seek out-of-this-world compensation for something you really haven’t done, and if you fail, don’t worry, the federal government will be there to bail you out. But if you’re one of those who live lives of quiet desperation, who live a decent, unremarkable life, but maybe you’re on the brink of financial disaster — you get screwed. Welcome to the new world economy. We’re mad as hell, in a funny, intellectually, riotous, quirky, lovable kind of way. You’ll laugh, you’ll cry, you’ll ask for more. Catch the latest episode of PoliTalk: where politics and policy meet real people.

Listen to the current installment of PoliTalk and get yourself informed, inspired, entertained and ready for the day… spread the word… tell two friends, and so on and so on…

The financial rescue package contains a provision that permits troubled financial institutions to apply for insurance (federal guarantees) and could prevent an outlay of $700,000,000,000. Furthermore, it can cut interest rates substantially, keep troubled homeowners in their homes, and certainly end the credit crunch.

The purchase assets provisions of the bill, buying paper at much less than its face value, will not put the financial institutions in enough funds to mitigate the credit crunch.

In fact the guarantee provision could even go too far in that direction. Administered sensibly by the Treasury Department it could be just right – if they would do it.

How?

If I’m a banker holding 13% sub prime mortgage paper now worth 40 on my books instead of 100, and I get a US Government full faith and credit pledge (insurance, really a guarantee) behind that debt, my lousy paper is worth way more than 100 right now. Maybe 120 or more. No one wants that. Inflation.
Big time.

So, when the banker comes in to get his insurance, he should pay a fee and, most important, agree that the interest rate on his paper will drop to, say, 3.5. He has to agree, because the US government can’t change his contract unilaterally.

In that way, his paper is worth 100. He sells it. He’s back in cash and the credit crunch is over. Regulations should cut back on the permission that sunk Lehman – ability to leverage cash 30 times. Twenty times does it nicely enough.

If you want to punish him because he was a bad boy, cut the interest a little so he only gets 90 cents on the dollar instead of 100. Less than that. No good. Because he won’t be able to do enough business and end the credit crunch.

New point. The homeowner who is paying 13% or whatever on the sub prime debt, a victim or a risk take or whatever (we’re at saving the economy not punishing him, his family and us now) should have his mortgage rate reduced to 5% so that he can pay his monthly charges. A sub prime mortgagor (interest rate, say 7and 1/2% or more) who has enough household income to do that should be part of the program. See below for the others.*

The difference between what the banker gets, say, 3.5%, to bring the paper to 100, and 5% ,what the homeowner pays, should go to the federal government to pay the costs of the program and any anticipated defaults.

That’s a program that works and benefits the economy, the taxpayer who lays out no money now, the financial sector and the homeowner.

*For another program, are we, as taxpayers better off if the guy who can’t pay all of his mortgage is thrown into the street, or do we really pay more to keep him in other housing, welfare and so forth. Maybe he should be subsidized some to keep him in his home. As I say, that’s another program.

The program outlined above works. Secretary Paulson has given no assurance that his plan works.

President Bush today signed the largest financial bailout bill in the history of the world. The financial bailout bill represents over $700 billion dollars that the US Treasury will have at its desposal to purchase bad debt from financial institutions with the goal of easing the ever tightening credit crunch that is currently spreading throught the world.

In a vote of 263 for and 171 against, The US House of Representatives passed the updated Financial Bailout Bill that was passed yesterday by the US Senate. The Bill now moves to the President, where it is expected to be signed into law without delay.